Saul Loeb—AFP
Pakistan needs the International Monetary Fund (IMF) to bail it out to avoid economic collapse and a resultant default on billions in pending debt repayments. The prevailing economic crunch has been worsened by last year’s floods, which cost the country an estimated $30 billion in damages, and destroyed crops, threatening food security. In a bid to revive the stalled loan facility, Pakistan has allowed significant devaluation of the rupee, raising inflation to a 50-year high, which disproportionately impacts the impoverished, who have seen the prices of the staple roti (bread) spike to Rs. 25.
The stalled IMF program Islamabad hopes to revive was initiated by the ousted Pakistan Tehreek-e-Insaf (PTI)-led government, which reneged on commitments twice. This was followed by the incumbent Pakistan Democratic Movement (PDM)-led government, which has seen the global lender imposing ever-harsher conditions to revive the Extended Fund Facility, prompting lawmakers to question who was to blame for the current crisis. Despite months of negotiations—and the acceptance of punishing prior conditions—there is no indication that the IMF is ready to release the next tranche of $1.1 billion to Pakistan. This has, understandably, raised speculation that Pakistan is on the brink of default despite repeated denials of the same by Finance Minister Ishaq Dar.
In a recent article, The Economist noted that Pakistan was already showing the tell-tale signs of a defaulter, including imposing import restrictions that the IMF does not support. “The IMF is good at stabilization but not so good at sustainable growth,” it warned, laying bare the core problem with Pakistan’s economy. Local economists, likewise, have started to highlight the flaws in the country’s economic policies, noting that its regional partners have prospered by encouraging exports. They also decry Pakistan’s addiction to superfluous imports, “ignoring the people’s needs against the short-term interests of the elite.”
The key challenge to Pakistan now is to reduce imports without unleashing hyperinflation, while also working to protect a private sector reeling from a record-high benchmark interest rate. The country also needs to stop destroying croplands for inefficient housing schemes, which serve to only serve the elite while forcing an ostensible agrarian economy to import grain at rates that are unsustainable for the majority, whose purchasing power continues to decline.